Regulator accountability? Let me ‘OFRA’ solution
Over the coming week, I have four more sets of thoughts I’d like to offer on Committee stage of the Financial Services and Markets Bill, completed just days ago in the House of Lords. Today, regulator accountability, tomorrow, the critical questions around cash, then, later in the week, digital ID and AI.
So, regulator accountability… Much of our discussions over the previous months have revolved around the role of our financial services regulators, not just a little on scrutiny and accountability. To put it plainly, in recent, 2016-related debates, I don’t remember anyone saying ‘let’s repatriate powers to our regulators‘.
That being so, and surely agreed, how we go about attaining adequate accountability and sufficient scrutiny without even a hint of fettering of their rightful and important independence, well, that’s been taking us all some time.
Following earlier amendments put forward by colleagues and myself we now consider the role of an independent body, similar in some ways to the Office for Budgetary Responsibility, to take on this accountability of our financial services regulators’ responsibility.
My colleague, Lord Bridges has come up with the concept of the OFRA…
“After several days of debate on this Bill, I get a sense that there is widespread agreement from all sides of the Committee on one point: the measures in this Bill to improve accountability and scrutiny are insufficient and must be strengthened.
“We need to do three things, all of which require amendments to this Bill. We need to improve the reporting by the regulators; improve parliamentary scrutiny and improve the quality of scrutiny and accountability by providing independent and impartial assessment and analysis of two things.
“First, we need an assessment of the FCA’s and PRA’s overall performance in meeting their statutory objectives and regulatory principles under FSMA 2000. Secondly, we need to provide analysis of the impact assessments for specific pieces of financial regulation so as to determine how those regulations are contributing to meeting the regulators’ objectives, also under FSMA 2000.
“That can be achieved, as the amendments set out, by creating an office for financial regulatory accountability, a specialist, independent, statutory advisory body, which would work to a charter set by the Government and laid before Parliament.
“Finally, and most important, will this new body undermine the regulators’ independence? I argue—this is crucial—that it will do the reverse. If we have a source of independent analysis of their actions, we can have a debate about that based on fact. It should therefore strengthen the legitimacy of regulators which are fulfilling their objectives and acting in a proportionate and timely manner.”
An ex and formidable member of the Commons Treasury Select Committee, Lord Tyrie added…
“We are all agreed because we can all see the same problem. As has been suggested, the Bill confers huge new powers on the regulators, repatriated from the EU, without making any meaningful suggestions to make them more accountable when they exercise those powers.
“We will support any and all amendments that improve scrutiny and accountability until and unless the Government come forward with a meaningful alternative.”
Finally, the man who led the listing review, Lord Hill, added…
“We must not think of this as an alternative to parliamentary scrutiny. We all agree that we need much more thorough parliamentary scrutiny; this amendment would help Parliament to do its job. The point that the scrutiny is to be fact-based and analytical is key.”
Responding for the Government, Minister Penn began…
“The Government agree, and have been clear, that more responsibility for the regulators should be balanced with clear accountability, appropriate democratic input and transparent oversight.
“The proposed creation of a new regulatory body to oversee the regulators—a so-called regulator of the regulators, although I know that my noble friend set out why he thought that term did not apply—raises further questions about how the accountability structures for the various regulatory bodies would operate.”
The Government’s current lack of enthusiasm for the proposal became clear…
“I am not sure whether it is clear that the addition of a further body to the system would provide greater clarity on where accountability lies but it raises questions that we would need to consider more carefully about who this body is accountable to and the interactions with parliamentary accountability that we have discussed today.
“There is the potential that it could duplicate or dilute the roles within the regulatory framework of government and Parliament to scrutinise and hold the regulators to account.”
In conclusion, Minister Penn closed down, at this stage, the OFRA opportunity…
“The Government have consulted extensively on the approach we are taking in the Bill, and we have received a number of responses on this specific issue in both future regulatory framework review in the consultations that took place. Although I absolutely recognise that a small number of respondents were supportive of further consideration of such a body, the vast majority were focused on how existing mechanisms for accountability to Parliament and government and engagement with stakeholders could be strengthened.
“The Government therefore decided, in response to those consultations, against creating a new body, and focused on ensuring that the mechanisms for Parliament and government to scrutinise the regulators are effective.”
There is clearly more than a degree of difference between us and the Government when it comes to regulator scrutiny and accountability. Report stage, coming up after Easter, will be well worth a watch.
We can get this so positively, purposefully right. Look at the Fintech sandbox, the scale box and soon-to-come FMI sandbox, look at all that innovation, business building, other countries copying innovation, not cutting even a fraction of an inch into independence.
Perhaps Lord Bridges’ amendment does indeed more than OFRA solution?